A green-led COVID recovery

Podcast transcript

Velvet-Belle Templeman

Welcome to Grant Thornton’s Navigating the New Normal Podcast Series.  My name’s Velvet-Belle Templeman and I’m here talking to Jannaya James, Partner in Financial Advisory at Grant Thornton, specialising in renewable energy.  Today, we’re talking about Australia’s renewable energy policy, with energy being a key component of Australia’s economic recovery from COVID-19, what does that actually look like?  Jannaya’s dialling in from regional Victoria.  Working remotely has definitely helped with flexibility, but as you can tell from today’s podcast, it can mess with sound quality.  Thanks so much for joining us, Jannaya.

Jannaya James

Thanks, Velvet-Belle

Velvet-Belle Templeman

Jannaya, last week was dubbed energy week.  Before this and before COVID, how was investment in energy tracking in Australia?

Jannaya James

Over the last few years, energy investment has actually been really strong.  That’s been off the back of higher wholesale electricity prices which have come from the retirements of coal-fired power stations and so on, but also government incentives and easier access to finance.  For a while there, Australia really did become a destination of choice, for want of a better way, for global companies expanding their renewable energy portfolios.  But what we’ve seen over the last 12 months to two years, there’s been a significant slowdown of that renewable energy investment. 

That’s really come about as a result of the tightening of contractual pricing arrangements, but also network constraints for those renewable projects on the periphery of our network and as a result, returns to the investors falling.  A lot of this has been driven by underinvestment in the infrastructure network and I guess, the tyranny of distance that characterises Australia’s energy network. 

Having said that, the Government has invested over $10 billion dollars into clean energy over the last few years, key ones being things like Snowy Hydro 2.0, but also hydrogen pilots and electric vehicle charging networks.

Velvet-Belle Templeman

Is this investment from the Government a signal that there is a positive shift in energy policy on the horizon?

Jannaya James

The challenge that both the Government and Australia more broadly is facing, is the provision of affordable, reliable and secure energy in the wake of more retirements in the coal-fired power stations.  This will basically risk increasing prices again.  The reality is, we have an insufficient supply of reliable dispatchable energy to replace these retirements.  Last year’s budget, it seemed that the Government was not really making any real commitments to a clean energy future.  However, over the past 12 months there has really been a shift and that’s culminated in the announcements of last week in what was dubbed ‘Energy Week’.  As part of that, the Government has basically thrown down the gauntlet to the private sector, to ask the private sector to propose a project by April next year that can replace the retirement of the Liddell Power Station and in the event that the private sector can’t come up with that, they will replace that with a gas-fired power station.

This has caused some debate, effectively replacing fossil fuel with another fossil fuel, albeit a lower emissions fossil fuel.  But it’s important to understand, this solution is leading a transition to clean energy.  Watching the National Press Club last week, Andrew Liveris was at absolute pains to be clear about that gas is really going to be a transitional fuel.  The benefit with what the Government’s proposing here is investment in gas infrastructure can assist in that transition, with emerging technologies such as hydrogen, as that same infrastructure can be used for hydrogen. 

What’s really exciting though, is the private sector’s already responded with the likes of Mike Cannon-Brookes coming out and really accepting the challenge and looking to provide a reliable secure solution.  I think the other thing about the announcements of last week that has been brushed over a little bit, is the commitment for long-term funding and expanded focus for ARENA to the order of about $1.6 billion dollars.  But also, the promise to expand the Clean Energy Finance Corporation’s mandate to invest in a lot of new energy technologies.  This will really enable work for the private sector to support it and develop low emissions technology.

Velvet-Belle Templeman

This is really exciting.  What sorts of energy companies could benefit most from this?

Jannaya James

Well, the headlines have really been about developing a hydrogen industry, but the key to the funding, as far as I’m concerned, is emerging technologies, technologies that focus on things like carbon sequestration, energy from waste, [4:33.1] in regional and remote Australia, storage solutions as well as both a manufacturing or industrial level, but also at a scalable utility level.  At the moment, things like battery storage is currently cost prohibitive and the supply just isn’t sufficient to meet that demand.  The real opportunity we’ve got here is basically a ‘green-led’ – for want of a better word – COVID recovery.  Particularly in the areas of manufacturing, agriculture and transport sectors, where new technologies can really help make the Australian industry more competitive.

Velvet-Belle Templeman

Are these Australian companies or overseas ones like Tesla?  What does international energy investment look like in Australia?

Jannaya James

Well, the opportunity here isn’t about looking overseas, but how we can actually increase clean technology investment locally.  Our R&D and development capability in Australia is as good as anywhere else in the world and we really are at the forefront of being able to develop some really smart technologies.  With a focus on improving the competitiveness of the heavy energy users of Australia, this really does create an opportunity for these clean tech companies to develop and commercialise technology that will really make Australia much more competitive on a global scale.  Things like load management technology or behind the metre energy solutions can really increase the competitiveness of, say, our manufacturing sector, as well as having the benefit of reducing our emissions and meeting our clean energy target in the longer-term.

Velvet-Belle Templeman

Jannaya, yesterday the government released their Technology Investment Roadmap which set out short, medium and long term goals towards Australia’s new energy future.  There is a particular emphasis on hydrogen, what are your thoughts on this? 

Jannaya James

They low emissions statement that came out yesterday is really the first thing to come out of that Technology Investment Roadmap and I think what we are seeing here is a real prioritisation of technology with hydrogen, storage, low carbon manufacturing, carbon capture and those sorts of things being the absolute highest priorities. The Government’s even articulated some stretch goals associate with them to make them affordable and reliable technology. And in particular what was really interesting is that they have brought in that manufacturing focus, particularly around high energy use industries like aluminium and steel manufacturing and really trying to drive low emissions into those sectors to enable us to become a lot more competitive. But I think the part that I find really interesting is where most of my clients are situated and that in the emerging and enabling technologies, which really are there to support the technologies of the priority areas. And what the Government is saying here is that they are really looking to partner with the private sector, both locally and that they even mentioned, internationally to invest and support these technologies. And look that’s going to be done through the likes of ARENA and the Clean Energy Finance Corporation. But what they’ve also articulated is support for other sort of tech incubator type programs, which I think is a really, a really interesting and really positive spin on things and things like support for CSIRO innovation, early stage venture capital partnerships and they even mentioned tax incentives for early stage investors. These are the sorts of things that for my clients in particular will really support them in developing the technologies that can lead to a low emissions future.

Velvet-Belle Templeman

So, investing in renewable energy is on the horizon, but there are issues with transmission and loads, aren’t there?  How do we get the right mix of sustainable and on-demand energy?

Jannaya James

Wind and solar are intermittent.  They tend to only generate power when the wind blows or the sun shines, and that intermittency places immense pressure on our grid and doesn’t provide the reliability required.  A really good example is that we see a lot in the mining sector in particular, where they are still heavily reliant on gas and diesel as the principle energy source, only supplemented by renewables.  To continue support for wind and solar in particular, improvements do still need to be made to the network.  It was pleasing to see last year that the Government introduced a $1 billion dollar grid reliability fund and that’s going to help improve our networks and have it robust enough to support the intermittency of the likes of wind and solar. 

Also, this grid reliability fund isn’t just about the compromise in the transmission network, it’s also about looking at things like storage solutions, pumped hydro is a good example.  Again, this is where gas has come in – I don’t believe it is a long-term solution.  However, it is an adequate transition, but without the continued investment in the alternative, what we’ll see is the commitment of long-term for a clean energy future will somewhat be restricted. 

Velvet-Belle Templeman

We’ve talked about the recent announcements, we’ve touched on the technology investment roadmap, what more would you hope to see from the Government in the lead-up to or in the budget to really spearhead investment in energy?

Jannaya James

The announcements they’ve made over ‘Energy Week’ as they called it, over the last week and probably over the last year, is really creating a great base.  To be honest, I think most people would say the last year’s budget lacked any real clarity around clean energy going forward.  What I would really like to see is a real focus on supporting our emerging clean tech industry, in terms of supporting the development and commercialisation of clean energy technologies.  By doing this, I think that we can use it as a way to use energy to change our heavy use segments of our economy, things like manufacturing, mining, agriculture, transport…  We’ve got a fantastic R&D capability in this country and we have the potential to be a real world-leader in clean tech, and so what I’d like to see is more grant and R&D incentives focused on the development and commercialisation of these technologies.

Velvet-Belle Templeman

Jannaya, any final thoughts – what could Australia’s energy future look like?

Jannaya James

Well, we are in a time of disruption and there is no better time to really focus on this.  We have a perfect opportunity now to have a manufacturing-led recovery and that provides huge opportunities for emerging clean energy technology that will reduce cost to our manufacturing and other sectors and make these economic stimulating sectors increasingly competitive.  We do need to focus on getting the mix right in the short-term as well as the long-term in order to meet the clean energy targets.  As I said before, we do really have such a strong R&D capability and it’s not only to improve the competitiveness of our local industry, but we can potentially be a key exporter in clean tech. 

What we’re seeing now in terms of the Government announcements over the last week and what I’m hoping to see in the budget, it’s a really great starting point and I really look forward to seeing a continued commitment to driving growth in the clean tech space going forward.

Velvet-Belle Templeman

Jannaya, thank you for your time.

Jannaya James

Thank you.